Question #196610

Suppose that the demand and supply functions for good X are

 



 

a.      What are the equilibrium price and quantity?

b.     What is the market outcome if price is $2.75? What do you expect to happen? Why?

c.      What is the market outcome if price is $4.25? What do you expect to happen? Why?

d.     What happens to equilibrium price and quantity if the demand function becomes

e.      What happens to equilibrium price and quantity if the supply function becomes

 (demand is   = 50- 8P)?  



1
Expert's answer
2021-05-23T19:26:24-0400
solutionsolution

Assume that:Qd=508PQs=17.5+10PAssume\ that: \\ Q_d=50-8P\\ Q_s=-17.5+10P


A ) The equilibrium is in the point, where Qd=QsQ_d=Q_s So, we put the equations of the demand and supply into the equality.


508P=17.5+10P18P=67.5P=$3.75 is the equilibrium priceQ=50(8×3.75)=20 is the equilibrium quantity50 - 8P = -17.5 + 10P\\ 18P=67.5\\ P=\$3.75 \ is \ the\ equilibrium\ price\\ Q=50-(8\times 3.75)=20\ is\ the\ equilibrium\ quantity



B] For the lower price the quantity demanded will rise and the quantity supplied will fall, so there will be a shortage of product on the market.

C] For slight increase/ increase in price the quantity demanded will fall and the quantity supplied will rise , so there will be a surplus of the product on the market. 


D] assume the demand function becomes : Qd=598P?Q_d=59-8P?

Let us repeat the steps from the question {A} above .

Qd=Qs598P=17.5+10P18P=78.5PP=$4.36,Q=59(8×4.36)=24 units are new equilibrium price and quantity.Q_d = Q_s\\ 59 -8P = -17.5 +10P\\ 18P =78.5P\\ P = \$4.36, \\ Q = 59-(8 \times4.36)=24 \ units \ are\ new\ equilibrium \ price\ and \ quantity.


E] Assume that the supply function be comes:Qs=40+10PQs=-40+10P

lets repeat the same steps as in {D} above:

Qd=QS508P=40+10P18P=90P=$5Q=50(8×5)=10 is the new equilibrium price and quantity.Q_d=Q_S\\ 50-8P=-40+10P\\ 18P=90\\ P=\$5\\ Q=50-(8\times5)=10 \ is \ the \ new \ equilibrium\ price\ and\ quantity.




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